Articles in Category: Metal Pricing

Even if U.S. steelmakers have been slow to add capacity following President Trump’s tariff protection, it would seem foreign steel makers are willing to commit to domestic U.S. production.

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The Financial Times this week reported on the announcement by BlueScope Steel, Australia’s biggest steelmaker, to examine adding 600,000 to 900,000 metric tons per year of steelmaking capacity to its North Star business in Ohio. This would raise the Ohio plant’s existing production of 2.1 million metric tons per year to some 3 million tons at a cost of between U.S. $500 million and $700 million.

The project would involve the addition of a third electric arc furnace and a second slab caster, according to the Financial Times report. A decision is expected at the company’s February 2019 annual results pending the outcome of the feasibility study, by which time a clearer picture may emerge of what the tariff landscape is going to look like longer term.

Interestingly, Australian steelmakers are exempted from the tariffs; in theory, BlueScope could have invested at home. Australia, however, along with Argentina, are subject to quota limits, so ramping up domestic production to meet U.S. demand is not considered a viable option.

According to the Financial Times, domestic U.S. steel producers are, not surprisingly, doing rather well from the tariffs.

The resulting price rises have fueled a rally in U.S. domestic prices, helping firms like ArcelorMittal surpass forecasts previously set by analysts. Arcelor’s earnings came in at $5.59 billion before interest, taxes, depreciation and amortization for H1 2018. That represented an increase of 28.6% on the same period a year before, as half-year sales rose 17.6% year-on-year in value terms to $39.2 billion, primarily due to higher steel selling prices. Net income was up by almost one-third to $3.06 billion. It hasn’t yet resulted in Arcelor announcing any increased investment in domestic U.S. production capacity — the real aim of the tariffs — but, arguably, steelmakers are waiting to see how the whole tariff situation develops and whether they are truly here to stay (in which case, investment could result).

The U.S. Department of Commerce found foreign steel accounted for about one-third of the 107 million metric tons of steel the U.S. economy used in 2017, the Weekly Standard reported.

Although U.S. producers still have a commanding market share, the report concluded that inexpensive foreign imports were causing domestic steelmakers to lose money, lay off workers, and close plants last year.

U.S. steel plants in 2017 ran at just 72% of capacity, below the 80% level they are widely considered necessary to be profitable. The blame for poor capacity utilization fell firmly at the door of “excessive imports of steel.”

Well, that was last year; this year is something very different.

Following tariffs, steel prices are up sharply, profits are up at the domestic mills and so is capacity utilization. The domestic mills have the option to price balance towards full capacity, shielded as they are now behind a 25% import tariff. They may choose to take higher prices and forego full capacity or adjust pricing to achieve full capacity; we will see what policy has been adopted when Q3 and H2 figures are released.

It is unlikely significant new capacity will be added in the short term, though, despite talk of planned new capacity.

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According to Reuters, steel output in the United States rose 2.9% in the first half to 41.9 million metric tons and gained 0.8% in June to hit 6.9 million tons for the month. Data from the American Iron and Steel Institute (AISI) show capacity utilization at U.S. mills in the year to July was 76.4%, up from 74.4% in 2017, suggesting domestic mills generally are opting for better prices as a route to profitability rather than pricing out tariffed imports.

The Renewables Monthly Metals Index (MMI) dropped three points for an August MMI reading of 105.

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BHP Getting Into Cobalt

Miner BHP Billiton has plans to ramp up its production of a cobalt product used in electric vehicle (EV) batteries, Bloomberg reported.

Per the report, the miner has had success in producing cobalt sulphate alongside its nickel product at its Western Australia operation, according to an interview with Asset President Eduard Haegel.

Questions about cobalt supply and price volatility persist, but a miner of the size of BHP looking to expand its presence in the sphere is an indicator of the metal’s importance and, thus, the level to which the EV market is coveted.

Speaking of Cobalt Prices…

The price of the coveted metal has come off a bit of late, but that might just be a short-term blip.

According to the Toronto-based Sherritt International Corp — a miner with operations in Cuba, Madagascar and Canada — the softening of cobalt prices should reverse as demand continues to pick up, particularly vis-a-vis the growing EV sector, Reuters reported.

Plate Prices

According to a report in the Hellenic Shipping News, shipbuilders in South Korea are asking steelmakers to freeze shipbuilding plate prices.

According to the report, the Korea Offshore & Shipbuilding Association is asking for the freeze because price hikes threaten their survival, as declining orders and increased competition from China have weighed on the Korean shipbuilding sector.

Thick steel plate prices jumped $44/ton in the first half of the year, according to the report.

Actual Metals Prices and Trends

Japanese steel plate fell 1.0% month over month to $715.62/mt. Korean steel plate rose 1.6% to $682.89/mt. Chinese steel plate fell 4.4% to $707.51/mt.

U.S. steel plate jumped 5.2% to $986/st.

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Chinese neodymium fell 4.0% to $60,182/mt. Chinese silicon fell 2.8% to $1,511.89/mt. Chinese cobalt cathodes fell 2.8% to $97,612.20/mt.

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This morning in metals, a Chinese province announced new capacity cut targets as part of the country’s overall environmental plans, copper supply-side issues and Vedanta’s quarterly earnings rise.

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Plans to Cut Steel, Coal Capacity

China’s Shandong province has new targets for cuts on steel and coal production, Reuters reported.

The plans include cuts to pig iron production capacity of 600,000 tons and crude steel of 3.55 million tons by the end of this year, according to the report.

Copper Supply-Side Issues

The copper price has been in a downtrend of late. While it remains to be seen if the downtrend will become a long-term slide, copper watchers are also paying attention to supply-side issues at Freeport-McMoRan’s Grasberg mine in Indonesia.

According to Bloomberg, the mine will see production cut by 300,000 metric tons next year as the miner transitions open pits to underground operations.

Vedanta Earnings Up

Indian miner Vedanta Resources reported a rise in quarterly earnings, Reuters reported.

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For the three-month period ending June 30, the miner reported EBITDA of $983 million, up from $778 million for the same period in 2017, according to the report.

Source: Laurentiu Lordache/Adobe Stock

Not long ago, we mentioned that copper prices had been plunging of late — but the so-called “Dr. Copper” isn’t the only one on hard times.

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Zinc has also been trending down this year. LME primary cash zinc opened the calendar year at $3,288/mt, but was down to $2,895/mt as of Wednesday, June 27 according to MetalMiner IndX data, good for a 12% decline through the nearly halfway point of the year.

Still, the zinc price remains in a long-term uptrend that dates back to December 2015.

The LME zinc price has dropped 12% so far this year, but is still in a long-term uptrend. Source: LME

A Global Surplus in Q1

First, we must look at basic supply and demand. According to the International Lead and Zinc Study Group (ILZSG), the global refined zinc market boasted a 25 kt surplus in Q1 2018. In addition, reported inventories rose by 118 kt in Q1.

Zinc mine production, however, barely budged in Q1 compared with Q1 2017. In Q1 of this year, mine production was 3,086,000 tons, compared with 3,082,000 tons in Q1 2017.

Meanwhile, refined zinc metal production globally jumped 1.7% year over year in Q1 2018, as production in Australia, Belgium, China, Norway and Peru helped cancel out decreases in India and China, according to ILSZG.

As for actual usage, that only increased by 0.4%, driven by demand from China and India, according to the report.

U.S. Dollar

The U.S. dollar correlates inversely with zinc, as it does with other base metals.

As such, it’s important to note the firming of the U.S. dollar over the past few months. The index is up 5.74% compared with three months ago, according to MarketWatch data.

Chinese Smelter Cut Gives Price a Boost

The zinc price did get a boost on Thursday, June 27, as Chinese smelters plan to cut production by 10% on account of low prices, according to a Reuters report.

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The LME zinc price moved up 0.8% on Thursday, moving off of a 10-month low, according to the report.

The Raw Steels MMI decreased again this month, falling two points down to 77. Steel prices seem to have lost momentum and fell this month both domestically and internationally. However, mills have announced price hikes for November.

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Prices in October fell for all forms of steel, although HRC and plate prices increased slightly at the end of the month.

Source: MetalMiner data from MetalMiner IndX(™)

However, historical Q4 price trends generally suggest rising  prices and increasing demand. In addition, industrial metals remain solidly in a bull market.

Will steel prices see a bump too? Let’s take a look at the market indicators.

Domestic Steel Market

Domestic steel prices fell this month after trading flat (sideways) for the last few months. Steel price momentum has declined but Q4 increases often come in November and later. Service centers still report steady demand, despite significant steel price drops in October.

Lead times increased for all forms of steel. Increasing lead times generally support rising steel prices.

Let’s Not Forget About China

Curtailed Chinese capacity has supported steel prices during most of the year (particularly during Q3).

However, no real shortage exists, as China increased production in the summer to meet heavier winter demand.

In October, the  Chinese Steel PMI fell to a 6-month low, though it remains above 50, which still signals growth.

Source: MetalMiner data from MetalMiner IndX(™)

During the first few days of November, Chinese CRC prices held steady while HRC prices fell slightly. As HRC and CRC prices commonly move in tandem, prices will likely adjust during the month. Buying organizations should watch Chinese prices for signals of a price rebound.

Raw Materials and Scrap

Scrap prices fell together with steel prices this month. Scrap prices held somewhat steady during 2017 (as have steel prices).

Source: MetalMiner data from MetalMiner IndX(™)

Raw material price dynamics tend to correlate with steel prices. Steel prices decreased in October, following iron ore’s September price falls. Coal prices traded sideways in October, despite the short-term uptrend that began in April. Early November iron ore prices appear flat, while coal prices increased to the $100 level. Increasing raw material prices may create some upward movement for steel prices.

What This Means for Industrial Buyers

Steel price dynamics continued to lose momentum this month.

However, buying organizations will want to pay close attention to Chinese price trends, lead times and whether domestic mill price hikes stick.

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Actual Raw Steel Prices and Trends

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The Renewables MMI rose seven points in August, reaching a reading of 84.

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The basket of metals in this sub-index posted a strong month. Steel plate from Japan, Korea and China rose in the month. U.S. steel plate, however, fell 4.6%.

Meanwhile, in the topsy-turvy world of grain-oriented electrical steel (GOES), the U.S. GOES price jumped 7.3%.

Of the nine metals in the sub-index, only one (U.S. steel plate) posted a drop in price as of Sept. 1. Chinese silicon, cobalt and neodymium all also posted price gains.

Charged Up for Cobalt

Last month, we wrote about cobalt, which is in high demand for its application in electric vehicle batteries. Cobalt is mined predominantly in the Democratic Republic of Congo, which has been shaken by violence and political instability this year.

The instability there has seen production in the DRC decrease this year, yielding significant price increases in the metal. As we wrote last month, the instability of cobalt (not to mention growing ethical concerns vis-a-vis child labor at mines) has some battery makers looking to adjust their metal formulas, in some cases suggesting the use of more nickel, instead.

According to a Reuters report, however, cobalt has been boosted by projections touting a rise in purchases of electric vehicles. According to the report, UBS forecasted electric vehicles will account for 3.1% of global car sales in 2021 and 13.7% in 2025, up from 1% this year.

In addition, cobalt listings have skyrocketed, the report says. As of the end of July, 100 companies that explore or mine for cobalt were listed on the Toronto Stock Exchange and TSX Venture Exchange, up from fewer than 30 in 2015, according to SNL Financial.

In short, despite issues of supply volatility — and, thus, material cost — cobalt’s profile continues to rise in tandem with the rise of electric vehicles.

What About U.S. Steel Plate?

Like the rest of the U.S. steel industry, steel plate producers are anxiously awaiting the Trump administration’s determination in its Section 232 investigation of steel imports.

The investigation, announced in April, has a January deadline. The investigation picked up steam earlier on in the summer, but has seemingly been put on the backburner for the time being. As such, initial optimism from U.S. steel producers regarding potentially imminent trade action stemming from the investigation began to wane.

In a letter to the Trump administration last week, the American Line Pipe Producers Association (ALPPA) urged the president to take action, also mentioning steel plate in the process.

“The ALPPA strongly supports the imposition of tariffs to address this crisis,” wrote Timothy Brightbill, counsel to the ALPPA. “With tariffs in place, we could quickly return to full capacity, adding hundreds of direct jobs in addition to upstream and downstream jobs as well.

“However, in order for tariffs to be effective for our industry, steel pipe must be included in any tariff covering steel coil and plate, as failure to do so would be devastating for domestic large diameter line pipe producers and workers.”

Actual Metal Prices and Trends

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Steel Market Update’s 2017 Steel Summit kicked off in Atlanta this week and the topic on everyone’s minds was Hurricane Harvey and the far-reaching impact it will have on the Houston region.

The humanitarian impact of Harvey cannot be overstated, but the economic impact on Houston, an industrial hub in the southern United States, will be felt in both the short- and long-term, with freight transportation at a virtual standstill (Port Houston operations resumed today, according to an alert on the Port Houston website).

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According to SMU, FTR Transportation Intelligence reports up to 10% of U.S. truck capacity will be disrupted in the next two weeks.

“Look for spot prices to jump over the next several weeks with very strong effects in Texas and the South Central region, Noel Perry, partner at FTR, told SMU. “Spot pricing was already up strong, in double-digit territory. Market participants could easily add 5 percentage points to those numbers.”

Gas Prices Surge

In response to fuel supply disruptions from Hurricane Harvey, average national gasoline prices grew to $2.37 per gallon earlier this week, and continued to surge to $2.51 Friday morning, according to the AAA website.

“It’s still really early to tell what this is going to mean for long-term supply,” Denton Cinquegrana, chief oil analyst at Oil Price Information Service, told SMU. “If some of these refineries are flooded, it’s going to take weeks to get the water out of there and then get into damage assessment.”

How will steel and base metals fare in 2017? You can find a more in-depth steel price forecast and outlook in our brand-new Monthly Metal Buying Outlook report.

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Nickel prices maintained near nine-month highs mid-week, due in part to Chinese stainless steel mill demand and decreased supplies from the Philippines, a top exporter of ore.

According to a report from Reuters, nickel prices peaked earlier in the week to $11,885 a ton, its highest point since November 2016. Year-over-year, nickel prices are up more than 15%.

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“Stainless steel demand in China and elsewhere has surprised on the upside and talk about nickel consumption in lithium-ion batteries has helped,” Societe Generale analyst Robin Bhar told the news source.

“Supplies have been under stress,” Bhar added. “The Philippines exported less for various reasons, including monsoon rains, mine inspections and shutdowns. Some NPI (nickel pig iron) capacity has been shut in China because of environmental inspections.”

Nickel Lagging Behind in the Bull Run

Our own Irene Martinez Canorea recently wrote that nickel, along with tin and lead, are more reticent to join the bull rush with aluminum, copper and zinc.

She writes: “Even though the industrial metal outlook remains bullish, lead and tin seem to be behaving on their own terms. Buying organizations will want to pay careful attention to trading volumes in the coming month.”

How will nickel and base metals fare in 2017? You can find a more in-depth nickel price forecast and outlook in our brand-new Monthly Metal Buying Outlook report.

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The International Lead and Zinc Study Group (ILZSG) released its August report, which found the global market for refined zinc metal was in deficit during the first half of the year. Total reported inventories declined over that time, as well.

Global production from zinc mines grew 5.4% compared to the first half of last year, mostly due to a boost in output from Peru, India and Eritrea.

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Furthermore, zinc production suffered in places like Canada, Thailand, Peru and the Republic of Korea, leading to an overall worldwide increase of just 0.5% after factoring in growth in places like France, Brazil and India.

The ILZSG report stated: “Despite a decrease in Chinese apparent demand for refined zinc metal of 2.1%, global usage rose by a marginal 0.6%. This was mainly due to increases in the United States and Taiwan (China).”

Gauging the Zinc Price Ceiling

Our own Fouad Egbaria wrote just last week that zinc has really hit its stride, recently hitting its highest price point in more than a decade ($3,180.50).

Just how high can the zinc price fly? Reuters’ Andy Home states:

“But right now the LME zinc market is bubbling away with stocks falling and spreads tightening. Volatility seems assured but can zinc return to the heady days of late 2006/early 2007, when the price peaked out at $4,580?”

How will zinc and base metals fare in 2017? You can find a more in-depth zinc price forecast and outlook in our brand-new Monthly Metal Buying Outlook report.

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The lead price grew this week following a Chinese-issued ban on North Korean exports.

According to a report from Reuters, lead’s sister metals also rebounded, in response to once-rising geopolitical tension easing up a bit and Chinese data, a top metals consumer, coming in higher than expected.

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“Those Chinese numbers (on Monday) were quite soft … I suppose the only glimmer of light came in the new yuan loans, which beat consensus, and maybe that suggests that things will remain stable as we go forwards,” Robin Bhar, head of metals research at Societe Generale in London, told Reuters.

“The metals seem well poised. After a period of consolidation this week perhaps we’ll have another push towards those (recent) highs going forward,” Bhar added.

Lead Price Movement in August

Earlier this month, our own Fouad Egbaria reported that Chinese primary lead posted a price increase, growing 3.3% to $2,694.90/metric ton.

How will lead and base metals fare in 2017? You can find a more in-depth lead price forecast and outlook in our brand-new Monthly Metal Buying Outlook report.

For a short- and long-term buying strategy with specific price thresholds: